Are cash-strapped hospitals walking into a trap that could cost the NHS its family silver?

Hospitals from Yorkshire to Yeovil are rushing to set up secretive private companies in which to transfer NHS staff and assets. OurNHS looks in depth at the possible impacts – and whether it’s likely to go horribly wrong.

26 February 2018

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Image: NHS demonstration. PA Images/Victoria Jones.

Dozens of NHS hospital trusts across England are looking at (or
already have) set up private companies in which to transfer swathes of vital NHS
staff and assets. The moves are, according to Trusts, an attempt to save money through a supposed VAT
loophole designed to promote outsourcing, as well as savings on staff pay, terms and conditions. They are
also – an aspect overlooked in the coverage
to date – supposed to promote a greater focus on “commercialising” hospital
assets. More of that in a bit…

“By the time people realise it’s been a catastrophe, it will be
too late to undo”

Unions and staff are up in arms about the damaging impact of these
subsidiary companies in creating a two tier, demoralised workforce whose
goodwill and co-operation our doctors and nurses rely on every day to keep
hospitals clean, safe, and well-equipped. In Wigan, Harrogate, Bradford, and
Calderdale, Unison members are already close to strike action after union
ballots overwhelmingly rejected the plans. Gloucestershire – where around 700
staff are affected – is also about to run an indicative ballot, Unison announced
at an NHS activists conference in the county on Saturday.

Some hospital governors are deeply unhappy too – one in
Gloucestershire told OurNHS, “by the time people realise it’s been a
catastrophe, it will be too late to undo.”

There’s been no public consultation about any of the plans to
create private NHS subsidiary companies (known as SubCo’s), it seems. In
Gloucestershire, Hospital Chief Executive Deborah Lee told Stroud Labour MP
David Drew that “this is not a
matter for public consultation as agreed with the Gloucestershire Health Care
Overview & Scrutiny Committee (HCOSC)”. However Stroud Council
leader Doina Cornell, who sits on the county’s Scrutiny Committee, told OurNHS,
“We’ve not been consulted. There’s been a lack of input into it from any
councillors.” OurNHS asked Gloucestershire Hospitals about this apparent
discrepancy – and about a number of other points in this article. They have so
far declined to comment.

Cornell adds “Surely this is not the sort of thing we should be
doing…. this is a high-risk project.”

“…a gambit, a pretence, an illusion
and make believe…”

Indeed it is high risk. Whilst staff understandably worry about pay,
pensions and conditions cuts – and unions argue that any guarantees from
employers are worth little given weak employment law and the various hospital trusts' stated intent to
take on new starters on lower conditions – for the public, it gets more worrying still.

Many experts suspect the plans could collapse altogether, with the
corporates waiting in the wings of course. Respected health commentator Roy
Lilley has called the SubCo plans “a gambit, a pretence, an illusion and make believe” and on the same subject comments, “an
astonishing number of Trusts are heading down Carillion Street”.

Certainly, it’s worrying that many of the SubCo plans seem to
emphasise this VAT “gambit”. Gloucestershire, for example, told staff it would
save £35m over 10 years through this ruse, whilst the staff savings were merely “unquantifiable”. But the biggest similar scheme to date, UnitingCare in
Cambridgeshire, collapsed spectacularly – and one of the major reasons
(according to both NHS
England and the National
Audit Office reports) was because the NHS signed the contract on the basis of
incorrect advice about their VAT position, meaning an unexpected £5m a year was
added to the costs and the arrangement collapsed.

Selling off the hospital buildings?

And – perhaps most worryingly of all – now OurNHS openDemocracy has
uncovered considerable grounds for concern about what is happening to hospital
buildings around the country as part of these plans. We’ve also uncovered a
little noted aspect of the Health and Social Care Act 2012 that might partly
explain the sudden rush to "commercialise" hospital estates under these new schemes.

In existing SubCo’s, tens of millions of pounds of assets appear
to have transferred out of the NHS. In Northumberland, Tyne and Wear for
example, one of the few SubCo’s where the business case is publicly available,
the plan states that
£33.5m of land and buildings will be transferred from the NHS to the SubCo.
But in most of the plans about to be signed off in the coming weeks and months staff
appear to have been given little more than hints
of asset transfer (often highly self-contradictory, see for example Gloucestershire’s
leaked staff Q&A,and Airedale’s
(which they’ve mostly taken down in the last few days, but you can read the cached
link here [editors note - the cached link has also disappeared since this article was published yesterday, but here's the page as we downloaded it last week]).

Neither staff or public appear to be being told anything about
what hospital buildings are involved, and what this means for the future. Whether or not asset
transfers are key to the supposed VAT savings in Gloucestershire and elsewhere
is one of the unanswered questions put to the Trust. Some of the other SubCo’s appear to anticipate
no VAT savings, according to the Health
Services Journal (paywall).
Meanwhile, other established SubCo’s – notably South Warwickshire and East Kent – have
been set up to provide clinics and wards for private patients, OurNHS has
uncovered. What is going on?

The concerns about hospital buildings come in the light of huge
pressure on Trusts to sell off or commercialise parts of their estate, under
both
the Carter Review and the Naylor report that Theresa May
endorsed last year. Those hawking schemes to encourage sell offs
are impatient with the NHS holding on to their assets “like
the family silver” and preventing housing developers or rival private health
companies getting their hands on these ‘strategic locations’. And all the plans
– as elsewhere – are clear on one thing – that there will be “new people” with
“commercial expertise” running the SubCo’s - perhaps with a different attitude to
the family silver?

Tax expert Richard Murphy echoes campaigners’ suspicions.
Reviewing the Northumberland,
Tyne and Wear SubCo business case, he told OurNHS, “Reading between the lines as to the true motive of
this arrangement, it looks like a precursor to the sale to commercial
third parties of the underlying buildings and the service contracts associated
with them". Whether this is the intention – or an unintended consequence,
particularly if the financial models don’t otherwise stack up - remains to be
seen.

Sneaky legal changes post-2016?

OurNHS has also uncovered that a little spotted legal change seems
to be driving the rush to the SubCo model of estates management. In an article
written in May 2017 by SubCo advisors DAC Beachcroft (who are advising
Gloucestershire amongst others), the solicitors firm describes how “the foundation trust sets up a
wholly-owned subsidiary company. The estates workforce works for the company” but
they go on to explain that “the
outsourcing involves transferring the estate across into a wholly-owned
subsidiary company.” And intriguingly, they add “These
are only now possible because of recent changes in legislation that have
enabled NHS foundation trusts to transfer their legal rights in operational
property”.

What “recent changes in legislation” are these? OurNHS has spoken to
top NHS campaigning solicitors who are unsure but have suggested it may refer to a
change that follows on from the controversial Health and Social Care Act 2012.
One little noted aspect of the Act made it easier for the NHS Foundation Trusts
to sell off or otherwise dispose of assets, even where those were previously protected because they
were used to provide essential healthcare services (known as “Commissioner
Requested Services”). There were some transitional arrangements to protect
these services and the buildings used to provide them, following the 2012 Act –
but these arrangements ran
out in April 2016.

And certainly, the government’s attitude to these SubCo wheezes seems
a little slippery. On the one hand, the government’s “NHS Providers Finance
Director” Chris Young wrote an apparently strongly worded letter to Trusts last
September (and seen by OurNHS), which stated that “HMRC are actively
investigating the health sector in relation to tax avoidance schemes” - though
perhaps with a chink of a get out clause about such schemes being “acceptable”
if there are also “genuine commercial reasons” for pursuing them. Meanwhile numerous parliamentary
questions about the SubCo’s have been met with bland indifference from ministers.
Whilst some – like Labour’s health spokesman in the Lords, Phil Hunt – have
suggested ministers’ relaxed demeanour means any tax savings are likely to be
clawed back from the overall NHS budget, NHS insiders have also told OurNHS
that their strong impression is the main NHS regulator (NHS Improvement) is
quietly promoting these schemes.

So what can campaigners do?

In Gloucestershire, experienced NHS campaigners – who 6 years ago
took NHS Gloucestershire to Judicial Review and reversed the planned transfer
of nine local hospitals and 4000 staff to a so-called “social enterprise”
company - have written today (letter
here) to the local Hospital Trust's Board of Directors. The hospital's directors are due to agree the
project on Wednesday (28 February), but campaigners have raised detailed questions regarding all
the above issues. The campaigners warn the Directors that the Trust risks being "negligent" with public money and assets if they rubber stamp the plan before
they have clear answers to all these questions – which, campaigners point out,
should be shared with the public.

So what can Trusts do?

It’s not good enough for Trusts to rely on expensive, unpublished, "commercially confidential" advice from
the likes of DAC Beachcroft and KPMG. Gloucestershire for example has set aside
£200,000 for this advice, OurNHS has learned. And let’s not forget KPMG’s role
in Carillion – a role which prompted Peter Kyle MP to tell them last week in a
parliamentary Carillion investigation, “I
wouldn’t trust you to do an audit of the contents of my fridge”.

Nor does it seem wise for the twenty or so Trusts who are relying on advice
from QE Facilities Ltd, a SubCo created by Queen Elizabeth Gateshead NHS Foundation Trust. As Unison’s Michael
Sweetman drily told OurNHS, “they are selling this deal on the basis that
they’ve found it very lucrative – for them – but it’s lucrative for them partly
because they’re going around selling their consultancy on how to do it, back to
other parts of the NHS.” (Did anyone say “pyramid scheme”?).

Trust Chief Executives have even taken to Twitter to defend their
adoption of SubCo’s models, for example Sarah Jane Marsh, CEO of the Birmingham
Women and Children’s Hospital Foundation Trust, who also have a SubCo due to go
live next month. Marsh commented earlier
this month, “It’s a real head/heart issue - but the reality is if we don't, we will have
to reduce further posts as our CIP [Cost Improvement Plan, ie further 'efficiencies' or cuts needed] for 18/19 is £17
million.”

Instead, all Trust CEOs should be being as outspoken about the
government’s failure to fund the NHS as a few brave ones have been – and as honest about the obscure tricks the government
is using to push ever more outsourcing, even as the failures of Carillion,
Grenfell and PFI come home to roost.

OurNHS openDemocracy will keep investigating. Whatever the intent
of Trust directors, the reality is they tend to move on to pastures new within
a few years – only one of Gloucestershire’s current directors has been there
for any length of time, for example.

Meanwhile local people, currently frozen out of decision making,
may be left in a few years wondering how our precious hospitals were sold from
out under our feet.

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